The world economy is growing fastest in more than half a century this year, although differences and shortcomings could prevent it from reaching pre-pandemic levels soon.
The United States heads the post at this week’s International Monetary Fund’s virtual half-yearly virtual meeting, which expels billions of dollars of budget stimulus and resumes its role as guardian of the world economy following the defeat of President Joe Biden of “America First” President Donald Trump. Friday brought news of the biggest hiring month since August.
China is also doing its part, building on its success in the fight against coronavirus last year, even as it begins to withdraw some of its economic aid.
However, unlike the aftermath of the 2008 financial crisis, the recovery appears uneven, in part because vaccine deployment and tax support differ across borders. Among the laggards are most emerging markets and the eurozone, where France and Italy have extended activity restrictions to contain the virus.
“While the outlook has improved overall, the outlook diverges dangerously,” IMF Managing Director Kristalina Georgieva said last week. “Vaccines are not yet available to everyone and everywhere. Too many people continue to face job losses and rising poverty. There are too many countries left behind. “
[Bloomberg]
The result: it could take years for some parts of the world to join the United States and China to fully recover from the pandemic. In 2024, world production will still be 3% lower than expected before the pandemic, with countries more dependent on tourism and services, according to the IMF.
The disparity is captured by Bloomberg Economics’ new emissions show, which shows global growth of 1.3% quarter-on-quarter in the first three months of 2021. But as the United States bounces, France, Germany, Italy, the United Kingdom and Japan are hired. In emerging markets, Brazil, Russia and India are clearly being overtaken by China.
For the full year, Bloomberg Economics expects growth of 6.9%, the fastest in records dating back to the 1960s. Behind the prosperous outlook: a declining virus threat, an expanding U.S. stimulus, and accumulated trillions of dollars in savings.
It will depend very much on how quickly countries can inoculate their populations with the risk that the longer it takes, the more likely the virus is to be an international threat, especially if new variants develop.
Bloomberg’s Vaccine Tracker shows that while the United States has administered doses equivalent to nearly a quarter of its population, the European Union has not yet reached 10%, while rates in Mexico, Russia and Brazil are below 6%. . In Japan the figure is less than 1%.
“The lesson here is that there is no compromise between growth and containment,” said Mansoor Mohi-uddin, chief economist at Bank of Singapore Ltd.
[Bloomberg]
Former Federal Reserve official Nathan Sheets said he expects the United States to use this week’s virtual meetings of the IMF and World Bank to argue that now is not the time for countries to withdraw from assistance. to their economies.
It is an argument that will be directed mainly at Europe, especially Germany, with its long history of fiscal rigor. The EU’s € 750 billion ($ 885 billion) joint recovery fund will not start until the second half of the year.
The United States will have two things in its favor to defend its case, Sheets said: a strengthened national economy and an internationally respected leader of its delegation to Treasury Secretary Janet Yellen, unknown to IMF meetings since its inception. stage as president of the Fed. the larger economy could be on the defensive in terms of vaccine distribution after accumulating massive supplies. “We will hear a nuance and tears during these meetings to gain more equal access to vaccines,” said Sheets, who is now the head of global economic research at PGIM Fixed Income.
And while the booming U.S. economy will no doubt act as the engine of the rest of the world, absorbing imports, there could also be some rumors about the higher borrowing costs of the rapidly growing market, especially of economies that are not so healthy.
“The Biden stimulus is a double-edged sword,” said IMF chief economist Maury Obstfeld, who is now a senior member of Washington’s Peterson Institute for International Economics. Rising U.S. long-term interest rates “harden global financial conditions. This has implications for debt sustainability for countries that went deep into debt to fight the pandemic. “
JPMorgan Chase & Co. chief economist Bruce Kasman said he has not seen such a wide gap in 20 to 25 years in the expected performance of the US and other developed countries compared to emerging markets. This is due in part to differences in vaccine distribution. But it also depends on the economic policy decisions made by various countries.
After mainly lowering interest rates and starting asset purchase programs last year, central banks are splitting up with some of the emerging markets that are beginning to raise interest rates, either because of the acceleration of inflation or to prevent capital outflows. Turkey, Russia and Brazil raised debt costs last month, while the Fed and the European Central Bank say they will not do so for long.
[Bloomberg]
Rob Subbaraman, Head of Global Market Research at Nomura Holdings Inc. in Singapore, he believes that Brazil, Colombia, Hungary, India, Mexico, Poland, the Philippines and South Africa are at risk of pursuing too loose policies.
“With major developed market central banks experimenting on what power they can make savings before inflation becomes a problem, emerging market central banks will have to be very careful not to fall behind the curve and will probably have to to lead, instead of following, market counterparts developed in the next cycle of fare hiking, ”said Subbaraman.
In an April 1 video for clients, Kasman summed up the global economic outlook in this way: “Boomy-type conditions with fairly wide divergences.”